For a while, the market's biggest positive has been good underlying support. Dips have been bought, and whenever it looks like we are on the brink of slipping lower, there is a quick reversal.
Some of those positives disappeared today as we had almost no intraday bounce, closed at the lows and broke to the lowest level in a couple of weeks. The selling wasn't particularly aggressive, but it was persistent.
We ended the day with breadth running about 2-to-1 negative, but the number of stocks hitting new 12-month highs expanded slightly to about 200. That is still quite low, but an improvement over Friday. Volume was light and was mainly just slow selling.
One focus of the bears today was the poor action in semiconductors and transports. Semiconductors are often viewed as a contrary indicator when they make new highs, and that seems to be the case again. The SMH is down six straight days after breaking out last week and is trading below its 50-day simple moving average.
This market has consistently found its footing and bounced back quickly after action like we had today. It wouldn't be at all surprising to see some strength as the Greece issue is pushed down the road again.
Overall, this market has been undergoing a slow change in character and there are concerns that it isn't going to shake off its lethargy, with the issue of higher rates gaining traction. The indices are still holding up technically and there are some pockets of good action, but we are losing steam and the danger of a technical breakdown is increasing.
Have a good evening. I'll see you tomorrow.
June 8, 2015 | 1:24 PM EDT
Downright Dreary Action
- · Volume is light and there isn't much going on.
It has been a slow, drippy, uninteresting Monday for the indices. Volume is light and there isn't much going on. Breadth is slipping a bit and the S&P 500 is hitting intraday lows at midday, but there still isn't any urgency to the selling. We still have a few individual stocks of interest for traders, but the overall atmosphere is extremely slow again.
For many weeks the action has been pinned in a trading range with key support levels holding well and periodic bouts of positive momentum. The bulls haven't been able to build on the strength but the bears have been even more inept building on weakness.
The big issue is whether the limited upside movement is going to eventually cause some bulls to lock in gains and move to the sidelines. Some are growing weary of the choppiness and lack of progress. It doesn't help that we have negative seasonality to contend with as well as the issues with bonds and interest rates.
The bulls continue to tell us there is good stuff out there, which is undoubtedly true, but if you aren't in Ambarella (AMBA), CyberArk (CYBR) or a small handful of others, it is a slog. You can find positives to dwell on but they are shrinking and the level of worry is increasing.
The old adage about shorting a dull market may be applicable again, but while avoiding shorts has been a good idea, it hasn't been easy to buy either. With new intraday lows, it is looking downright dreary.
Jun 8, 2015 | 10:43 AM EDT
Worries About Interest Rates Weigh on This Market
- The character of the market has been slowly shifting.
We had our routine dip buying to start the day, but it was quite mild and didn't last long. Breadth is running two to three negative, and the action is mixed. There are a few pockets of momentum action in names like Tesla (TSLA), Ambarella (AMBA) and CyberArk Software (CYBR), but it is quite narrow. Energy is leading while chips, biotechnology and solar energy are lagging.
We do have a bounce in bonds that is helping, but the main issue is, we are stuck in a trading range and market players are waiting a clear trend to emerge before they become more aggressive. For weeks now I've been writing about the strong underlying support, but limited upside momentum. There are enough stocks doing well to keep the bulls positive, but it has been quite a small group that has been leading.
The character of the market has been slowly shifting as there is more and more concern about bonds and interest rates. It hasn't progressed to the point that it has caused a trend reversal, but it is keeping the upside contained. We aren't seeing the V-shaped action that was driven by central bankers for so long and, in many ways, that action is now less manipulated.
VASCO Data Security International (VDSI), which I discussed last week, is my largest position at the moment. Cybersecurity is probably the best sector right now. Putting cash to work is a major task but it is possible if you stay selective and manage things closely.
June 8, 2015 | 7:39 AM EDT
I'm Not Going to Anticipate Disaster, but Stay Vigilant
- The bears continue to believe a major decline is coming.
"Happiness is not the absence of problems; it's the ability to deal with them."
While the overall market is holding key support levels, remains in an uptrend and has pockets of momentum, there are a number of issues that are developing that could lead to problems. So market players are resolute and not too worried about a growing number of negatives, but it is no time to be complacent, as the potential for increased volatility is building.
The very tiresome Greece issue continues to grab headlines, but cynical market players that have watched that can being kicked down the road for five years now are watching for another "Greece is saved" rally. There are enough negatives to spook the market and obviously Greece doesn't have any money to pay its bills, so there is a potential catalyst for more market swings as this evolves.
The bigger, and more important issue, is bonds. So far the indices have done a pretty good job of ignoring increased yields, but as the iShares Trust - iShares 20+ Year Treasury Bond ETF (TLT) tumbles, it has dampened the ability of the market to move higher. The S&P500 in particular is having some struggles as it cracks support at the 50-day simple moving average, but remains above the May lows.
If you focus too much on the pattern of the indices, you will really miss what is going on in this market. There are pockets of momentum and there is strong support. The biggest challenge for traders is that we aren't building on breakouts. There is some chasing, but it is limited. That can be easily seen in the number of stocks making new 12-month highs, which is less than 200, which is unusually low given that the Nasdaq is within one good day of all-time highs.
The market's cognitive dissonance over interest rates was on display Friday. The stronger-than-expected jobs news initially created a little pressure, as fears that the Fed will raise rates sooner bubbled up, but it was quickly forgotten as overall economic strength and inflation are still low enough to prevent any big rush to boost rates. The numbers are good, but not strong enough to derail faith in the Fed.
The bears continue to believe that the market is on the brink of a major decline, which will be driven by interest rates. They can point at the DAX in Germany as an example. The DAX is now down 10% from its peak in April as its bond market continues to plunge. There is a much strong relationship between bonds and equities taking place there and the bears believe that the U.S. will suffer the same fate.
Rather than be overly bullish or bearish, the best course of action is to acknowledge that we are in a trading range and focus on individual stocks that are working. Big macro calls may garner attention, but they aren't making money. If and when conditions shift, it won't be hard to reposition.
My game plan is to focus on some pockets of momentum but to manage positions closely. I'm ready to go to cash quickly should the negatives out there develop further, but I'm not going to anticipate disaster until there are some signs of real problems.
We have a negative open on the way, as overseas markets are mostly red. That has been a welcome sight for early dip buyers, but they are not staying around for long after the initial flip.